Assuming that most criminals conducted ''a rational assessment of their planned illegal behaviour'', weighing up potential gain with potential penalties, bore ''little resemblance to reality''. However, white collar criminals – such as tax evaders, drug traffickers and insider traders – were the exception and ''far more likely to weigh up the risks and benefits of being caught [and jailed]'', he said.

Said Bathurst, don’t expect that the people who commit crimes out of passion or as a product of poverty and abuse will deliberate rationally on the implications of their act. By contrast, one would expect that rationality would be present in the deliberations of white collar criminals.

The Chief Justice, Tom Bathurst, says white-collar criminals are likely to weigh up the risk of going to prison. The risk seems to be tiny. For example, Dick Pratt never spent a day in prison, although he admitted to price-fixing which stole millions from everyone who bought items in cardboard boxes.

Judges' apparent reluctance to send such criminals down may be explained by a former Federal Court judge, Ray Finkelstein, QC. He wrote in the March 2012 issue of the Tax Office journal, Targeting Tax Crime: ''As a general rule the judge's rationale in sentencing [white-collar criminals] is different from sentencing true criminals … imprisonment, when available, is regarded as a last resort.''

True criminals? And what is the obverse? Finkelstein uses the term without embarrassment. Ah yes, that’s the indigent, the house breakers, the street dealers, etc. But Finkelstein did express himself unhappy with the judicial treatment of white collar crime, of which more later.

There has historically been a profound class bias in the law – different procedures, enforcement, sentences, etc. Indeed that has been a key historic function of the law – to enforce the bias of a class-based society. The US, the land of the free, is representative (and, as in Australia, add a racial bias to the mix). This from Michael Parenti’s 1974 Democracy for the Few (now in its 8th edition):

… the uneducated and the racial minorities are more likely to be arrested, less likely to be released on bail, more likely to be induced to plead guilty [‘plea bargains’ even with no evidence of guilt], more likely to go without a pre-trial hearing even though entitled to one, less likely to have a jury trial if tried, more likely to be convicted and receive a harsh sentence and less likely to receive probation or a suspended sentence than are mobsters, businessmen and other upper- and middle-class Whites.

And that’s assuming that the poorly educated and racial minorities haven’t been murdered beforehand by the forces of order. Well that was 40 years ago ― what about now? Here is Matt Taibbi, from ‘Why Isn’t Wall Street in Jail?’, Rolling Stone, 16 February 2011:

In the past few years, the [Obama] administration has allocated massive amounts of federal resources to catching wrongdoers – of a certain type. … You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players.

But for stealing a billion dollars? For fraud that puts a million people into foreclosure? Pass. It's not a crime. Prison is too harsh. Get them to say they're sorry, and move on. Oh, wait – let's not even make them say they're sorry. That's too mean; let's just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead. But don't make them pay it out of their own pockets, and don't ask them to give back the money they stole. …

As for President Obama, what is there to be said? Goldman Sachs was his number-one private campaign contributor. He put a Citigroup executive in charge of his economic transition team, and he just named an executive of JP Morgan Chase, the proud owner of $7.7 million in Chase stock, his new chief of staff.

More of the same. But the terrain houses more than a simple dichotomy. There is white collar crime and white collar crime. Regarding the financial boom and bust, Bernie Madoff was put away forever in June 2009 for running an elaborate Ponzi scheme. In June 2012, Caribbean-based ‘financier’ Allen Stanford was also put away forever for running another large-scale Ponzi scheme. But Madoff and Stanford were not part of the corporate mainstream and could be pursued without rocking the Wall Street flagship. The FBI is also chasing down various lower-ranked players for corrupt activities. The FBI? But what about the Securities and Exchange Commission and the Department of Justice? Taibbi has this to say:

Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom – an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities – has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. …

Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements – whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. …

But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals.

Taibbi tells of a junior SEC operative who, soon after arriving on the job in 2004, was thrust into a 2001 large-scale insider trading case implicating John Mack, who had recently resigned as President of Morgan Stanley and would soon become CEO of Credit Suisse First Boston. According to Taibbi:

His boss told him the case wasn't likely to fly, explaining that Mack had ‘powerful political connections’.

Not long afterwards, Morgan Stanley lobbied the SEC at a high level, the operative was sacked and the case against Mack disappeared

Taibbi continues:

Episodes like this help explain why so many Wall Street executives felt emboldened to push the regulatory envelope during the mid-2000s. Over and over, even the most obvious cases of fraud and insider dealing got gummed up in the works, and high-ranking executives were almost never prosecuted for their crimes. … All of this behavior set the stage for the crash of 2008, when Wall Street exploded in a raging Dresden of fraud and criminality. Yet the SEC and the Justice Department have shown almost no inclination to prosecute those most responsible for the catastrophe – even though they had insiders from the two firms whose implosions triggered the crisis, Lehman Brothers and AIG, who were more than willing to supply evidence against top executives.

And what of the maestros that strategically engineered the freewheeling financial environment which fostered this ‘raging Dresden of fraud and criminality’ ― Federal Reserve Chairman Alan Greenspan, President Clinton’s Treasury Secretary Robert Rubin and Deputy Secretary Lawrence Summers? The trio oversaw the dismantling of the remnants of the 1933 Glass-Steagall Act in 1999 and the passage of the Commodity Futures Modernization Act of 2000. Greenspan roams free, and his only punishment is to be condemned as a fool as much as a functionary for Wall Street. Summers was rewarded with the Presidency of Harvard University. And Rubin became an ‘adviser’ to Citigroup for a decade which ‘earned’ him a mere US$126 million for his services. Rubin’s main services to Citigroup was the repeal of Glass-Steagall, which legalised Citigroup’s prior creation in the 1998 merger of Citibank and Travellers, and to leave the organisation in 2009 as it required a massive bailout from the Government, a testament to the failure of Rubin’s own creed.

Yet, hot off the press, several suits in the US have been directed at the pinnacle of financial power – the New York Attorney-General is suing JP Morgan for allegedly defrauding investors in mortgage-backed securities; and a federal government Attorney is suing Wells Fargo, a test case, for misrepresenting the quality of defaulted mortgage loans on which it claimed a government-mandated insurance payout. These are courageous moves, but it is early days yet. Eliot Spitzer’s crusading zeal against white collar crime as New York Attorney General, 1998-2006, had him taken out of the game soon after on a sex sleaze charge. Trivial fines and no personal charges will be the probable outcomes.

There is also a dichotomy, perhaps more clear cut, within the white collar domain in Australia. On 15 August 2012, SMH court reporter Paul Bibby wrote of a Commonwealth Bank employee admitting guilt to embezzling almost $250,000 from the accounts of several customers. On 23 August 2012, Vanuatu-based accountant Robert Agius was sentenced to 9 years in jail for his key role in fostering tax evasion, uncovered by the Tax Office Wickenby investigations. On 20 December 2011, receiver Stuart Ariff was sentenced to 6 years’ jail for the corrupt defrauding of a company under his administration. Then there was merchant banker Simon Hannes, finally convicted in December 2002 (after appeal) for insider trading activity in 1996, and sentenced to over two years in jail.

In between there is the grey area, in which a sentence is imposed, but reduced because ‘character’ is brought into play, a perennial feature of white collar crime prosecution, missing from the prosecution of the lower orders. Here is an instance from March 2010, involving the manipulation of a company’s share price (the names are irrelevant).

[Justice C] said the offence was “objectively serious …the market must be free from manipulation … [and] your actions undermine share trading”. But Justice C said Mr X had shown remorse and she was “satisfied you are not likely to offend again” and had “excellent prospects for rehabilitation”. Justice C said there were issues of general deterrence and family issues which she needed to take into account and balance, but he must be adequately punished. … She said he sold his Toorak house and had moved to Hawthorn and was looking for work. Justice C referred to a reference from former [company] chairman [Mr Bigwig] saying [that] Mr X was diligent and professional in the face of many difficulties, he had put the company ahead of his own personal matters and “the offending was totally out of character”.

She quoted Mrs X’s first husband, Mr Y, who wrote a reference complimenting Mr X for looking after the five step-children. Justice C said it was “clearly a very difficult sentence”, restated that Mr X had taken responsibility for his actions and was able to be rehabilitated, but it was “a massive error of judgment through commitment and loyalty to family” and that given the need for general deterrence she must impose a term of imprisonment.

He sold his Toorak house and had moved to Hawthorn ― now that is an act of genuine contrition. White collar crime, moreover, perennially involves situations in which the offending is totally out of character ― so that’s all right then.

Then there’s the other end of the white collar crime spectrum, where the guilty parties get off scot free. The higher up you are the more likely it is. Witness that exemplar of boom and bust through the GFC, Centro Properties. The account is from Ian Verrender, sadly now departed from the Sydney Morning Herald, 3 September 2011.

[There were] extraordinary events in the Federal Court this week when Justice Middleton sentenced Centro Properties six guilty non-executive directors to … absolutely nothing. No fines, no banning orders, nothing. A small fine was doled out to the chief executive, Andrew Scott …

[Yet i]n late June the same judge found the entire board of Centro Properties guilty of breaching the Corporations Act and not fulfilling their duties as directors after major errors in the company's accounts mortally wounded the company, torching billions of dollars in investors' funds. … Almost $3 billion of short-term debt had been categorised as long term, an accounting error that disguised serious liquidity problems faced by Centro, particularly as the financial crisis gripped global markets … If the directors didn't know or didn't understand the accounts misrepresented its financial position, then it was their duty to know, the judge said. …

For his sentencing this week was far more conciliatory, and a departure from his June judgment. It now seems that in the unlikely event one will be found guilty, if indeed the corporate regulator even bothers to take action, you can walk out of court practically unscathed.

Verrender expands on the theme that is the dominant motif here.

Much has been written lately about the emergence of a two-speed economy. In law, there has been a two-speed system for generations. There's crime. And then there's ‘white collar crime’, a more genteel form of criminal activity where the amounts of money are infinitely larger and the penalties commensurably smaller.

And here is that ‘character’ thingo again, complemented by acknowledgement of a deep sensitivity of those wearing white collars, whose suffering is more exquisite than those committing ‘true’ crimes and for whom the damage to one’s reputation (the shame that one’s children face in the private school playground) is sufficient punishment in itself.

Not surprisingly, barristers for the guilty directors argued long and hard that their clients should not be punished for their negligence, that they had suffered enough merely by being dragged through the courts. It was a ‘one-off'’ failure, a ‘substantial shock’ and a ‘terrible experience’ for the six non-executive directors, claims that appeared ludicrous on any reading of the verdict. That argument, however, appears to have struck a chord with the judge. While he went to great lengths to point out in his guilty verdict that he didn't believe the directors dishonest, his language suggested there might be harsh penalties to deter others. That was not to be. Only Andrew Scott, the bombastic Zambian-born Centro chief executive, copped a fine, a mere $30,000 which will come, not from his pocket, but from the insurance policy Centro took to indemnify him.

Amazingly, even Scott was spared a banning order. Instead, the judge lauded Scott's credentials. “Mr Scott has abilities and skills as with the other directors, that the public should not be deprived of in the future,” he said. … And the non-executive directors? Banning them for even a short period would cause them ‘reputational damage … that cannot be under-estimated’, the judge said.

Returning to Finkelstein’s March 2012 opinion piece:

How do judges punish white collar crimes? As a general rule the judge's rationale in sentencing is different from sentencing true criminals. General deterrence … is usually the sole guiding principle. Retribution seems to have little role to play. Most judges believe that the humiliation, loss of job and loss of status experienced by white collar criminals when they are apprehended, brought to trial and punished, is usually sufficient punishment. …

What is interesting is that even though deterrence is the primary goal – imprisonment, when available, is regarded as a last resort. Probably the reason is a belief that imprisonment has a far greater detrimental effect on a white collar criminal. In some cases the judge will take into account the accused's ability to make restitution as a factor that eliminates the need for a prison sentence.

An accurate description of judicial practices, but the reasoning is absolute baloney.

This judicial leniency is not incompatible with the tokenism of convictions of (some) white collar crime. Simon Hannes’ insider trading was blatant, but insider trading is integral to the stockbroking trade. The condemned Stuart Ariff is merely a pimple on the bloated face of the receiver mafia, with big names like McGrath Nicholl, Korda Mentha and Price Waterhouse continuing to ply their parasitical trade undisturbed. Robert Agius was nabbed for a tax evasion scheme, but the pervasive transfer pricing used by multinational companies – in strategically shifting costs across their global supply chains to minimise tax paid in Australia – remains in the too hard basket.

But for stark contrasts, let’s consider the banks.

We read in mid-August in the SMH of a CBA employee who embezzled $250,000 from some customers. But no SMH reporter was on hand the previous week at the Senate ‘post-GFC banking sector’ Inquiry Hearings. There, one witnessed victims’ testimony of the Commonwealth Bank having fraudulently defaulted BankWest customers after the CBA took over BankWest in October 2008. The scam, affecting hundreds of victims, involves the expropriation of assets totalling hundreds of millions of dollars from its ex-customers. The CBA employee will be given a jail sentence. The cabal that instigated the CBA/BankWest massive fraud will not even be recognised as having committed a crime.

One significant reason for this ‘anomaly’ is found in a conceptual problem of some profundity. It has been convenient, for 150 years or so, to tolerate the fiction that the corporation is a person at law. But those who gave the public corporation the associated privileges failed to contemplate how one attaches the associated obligations. If a corporate entity engages in unconscionable conduct or commits a crime, what or who is to be held liable? One can fine a corporation, but one can’t put a corporation in prison. One might conceivably put a corporate executive or two in prison for a crime committed by the entity over which they titularly preside, but are the former (real) persons responsible for the crime attributable to the (unreal) corporate ‘person’?

The issue received a comic (if morbid) flourish in the 2008 French film Louise-Michel:

A factory is closed down without notice in provincial Picardy, with the machinery ‘delocalised’ elsewhere overnight. A group of outraged women workers agree to combine their meagre retrenchment money, hire an assassin and have the boss killed. But who is the boss; who is responsible? The disenfranchised ultimately achieve a satisfaction of sorts, but not before the would-be killers end up at a post-office box in the tax haven of Jersey. One can’t assassinate a post-office box. The entity ultimately responsible for the suffering is faceless, impersonal ― perhaps it is the system itself in which the particular entity is constrained to operate. It takes a farce to hone in on the essence of the problem.

If we can be a patient reader while Finkelstein diverts us with true crime and white collar reputations, he marginally lifts the bar. He expresses dissatisfaction that the public has good cause to infer that ‘there is a law for the rich and a law for the poor’. Thus:

The fight against white collar crime is an immense task and regulatory authorities have limited resources. Establishing a guilty mind at trial is always difficult and sometimes impossible. The courts' narrow approach to construction of statutes often defeats Parliament's true intention. Parliamentary intervention is necessary in some areas; but courts do have an essential role to play.

In the first place when acting as a court of construction the court could adopt a pragmatic approach to the definition of crimes. Second, as a court of construction the court could limit those crimes in which the prosecutor must establish a guilty mind. Finally, perhaps there may be some crimes where the courts can state that the standard of proof should be lower than 'beyond reasonable doubt' and suggest that parliament should bring about the necessary change.

Thus Finkelstein wants more pragmatism (common sense?), and lower hurdles. In particular, address the typically insuperable hurdle of ‘a guilty mind’ ― read knowledge and consent, whether explicit or tacit. A very interesting case is in train in France. Didier Lombard, sometime CEO/Chairman of France Telecom (2005-10), was indicted (with two immediate subordinates) this past July for presiding over a campaign and culture of moral harassment of employees, allegedly driving over 30 staff during 2008-09 to suicide. Lombard (and his predecessor as CEO) was definitely responsible for the oppressive culture, and indifferent to the suicides – but responsible for them? We breathlessly await the outcome of this trial.

More common sense and lower hurdles is long overdue for bank corruption and criminality in Australia. In particular, the National Australia Bank and the Commonwealth Bank of Australia have been engaged in corrupt and criminal activities more or less non-stop since the mid-1980s. A culture without ethical principles is now deeply embedded in sections of both companies and condoned at the top, regardless of CEO and Board Chairman turnover. Westpac and the ANZ are happy to carry on likewise on a less regular basis.

Even by existing criteria – the ‘guilty mind’; involving knowledge and consent – senior management from these banks should have already been hauled personally before the courts. Read the current NAB CEO, Cameron Clyne, for consistently ignoring persistent unconscionable and criminal activities under his watch that have been brought to his attention. Read a senior CBA/BankWest cabal who resided in authority when the CBA directed the criminal takedown of hundreds of BankWest customers from late 2008. This group would include Ralph Norris (then CBA CEO), Ian Narev (manager of the BankWest takeover and current CEO), David Cohen (CBA General Counsel), Jon Sutton (CBA manager placed at the head of BankWest upon takeover) and Ian Corfield (senior BankWest business manager). Add senior CBA management’s culpability for ongoing bread and butter corruption against individual customers.

The extent of the predation by the Big 4 banks, the NAB and CBA in particular, over small businesses and family farmers cannot be overstated. The ‘petit bourgeois’ sectors are the darlings of the ideology that perennially defends the market system in terms of its robust independence, its vibrancy, its initiatives, and so on. But ideology and reality dwell in separate worlds. Members of the petit bourgeois sectors are the fish in the barrel ― to be speared at will.

There is a second significant reason for the immunity of white collar corporate heavyweights, which was conveniently ignored by Finkelstein. We return to Taibbi for elucidation:

Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.

As in the US, so in Australia.

The entire system condones the white collar crimes committed by corporations and protects senior personnel who initiate or condone such crimes within their corporate organisation. The legal profession is pervasively corrupt, nourished by an impoverished education and an ethically vacuous professional legal culture. Both legal culture and legal practice are rooted in the law of the jungle. The judiciary itself is pervasively complicit or (on the margins) corrupt, hiding behind a bizarre ritual of ‘precedent’ that supposedly grants objectivity to judgements that are transparently discretionary and partisan. The regulatory system, regardless of formal legislative and regulatory powers, is pervasively inept, cowardly or complicit. The relevant bureaucracy (especially the Federal Treasury with regards to financial institution corruption) is otherworldly and indifferent. The political class is cowardly and indifferent; at best, cynically directing victims who seek their assistance to the mediation/regulatory agencies or the legal system that the political representatives themselves know to be of no help to the victims. Finally, we know so little about this integrated structure because the media will not cover it.

The current situation in Australia is thus entrenched and suits the powers that be. ‘True criminals' will continue to be incarcerated for the purposes of retribution. Lower order white collar criminals will continue to be incarcerated, for various reasons: having betrayed their white collar superiors (bank employees stealing from the bank rather than for the bank); tokenism (Ariff); having no corporate cover (Agius); and so on. Others with good social standing will be let off with minor charges for serious crimes because they acted ‘out of character’ and because they are so "respectable" public embarrassment is seen as punishment enough.

But those at the top of the white collar tree, armoured by the corporate entities and their resources over which they preside, will continue to commit crimes that will not even be recognised as such. When they leave their jobs, it will be with generous emoluments and praise (refer Ralph Norris upon departing the CBA). And this splendid arrangement will continue indefinitely.

At the top corporate level in Australia, the idea of white collar crime remains essentially an oxymoron. It will be white collar business as usual ― and its masses of victims be damned.

Dr Evan Jones: IA exposes banking fraud and corruption

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Independent Australia is a progressive journal focusing on politics, democracy, the environment, Australian history and Australian identity. It contains news and opinion from Australia and around the world. [ read more ]